What additional challenges might the move of the SLF 2016-20
into urban areas present?

SLF 2016-20 opened
for applications on 1 April 2016.
SLF 2016-20 is a
significant expansion in both size and scope for the fund, with a
number of alterations to how the fund is disbursed across the asset
acquisition process. The changes to the
SLF in 2016-20
are:

A commitment to extend the
SLF to 2020 with an
initial contribution of £10 million for the first
year.

An extension of the fund to cover the whole of Scotland, not
just rural areas

The move to a two-stage application process, with delegation
of stage 1 grant decision making (pre-acquisition) to a
management group staffed by Highlands and Islands Enterprise and
Big Lottery Fund.

The inclusion of stage 1 funding (pre-acquisition) in the
form of development grants of between £10,000 and
£30,000

An extension of the maximum revenue funding award to
£100,000 (including the stage 1 development grant) over 3
years post-acquisition

The extension of the maximum single award value from
£750,000 to £1 million

The introduction of dedicated pre-acquisition support with a
ceiling of £30,000 has the potential to significantly tackle
the observed inequalities between
HIE and
rest of Scotland areas in
SLF 2012-16. The
reliance of rest of Scotland communities solely on Big Lottery
Fund's Investing in Ideas fund for pre-acquisition support was
time-consuming, it depleted funds available to non-
SLF Investing in
Ideas applicants, and was capped at £10,000 regardless of
need. The move to disbursing pre-acquisition funding will enable
pre-acquisition support to fit cases on their own characteristics,
recognising that complex projects are likely to meet higher
technical costs.

However, given that throughout the course of the
SLF 2012-16
communities within
HIE
areas drew upon £320,000 from
HIE in
pre-acquisition support, it is possible that the additional
pre-acquisition support in
SLF 2016-20 will
largely substitute for
HIE's
internal resources. If significant competition for the fund is
achieved, it should be considered to set aside revenue funding
specifically for rest of Scotland communities who do not have
access to additional financial support in the pre-acquisition
stage.

The extension of post-acquisition support to 3 years in
exceptional circumstances is also appropriate. Many of the more
complex projects, particularly estate buyouts, woodland or housing
projects, are necessarily multi-year projects which often require
dedicated specialist professional support.
SLF beneficiaries
interviewed from the larger and more complex projects
(Beneficiaries B, C, D, F and G) all stressed how important
sustained revenue support for dedicated staff is for the continuity
of large and complex projects
. One interviewee whose funding ran out and was
unable to renew the post (Beneficiary C) spoke of all the energy
and momentum being 'sucked out' of their developments and put into
trying to secure further funding for their development worker.

The major omission in post-acquisition funding arrangements in
the
SLF 2016-20 is the
continued requirement to spend all revenue funding within the
fund's four-year cycle. This means that the full three year's
revenue funding will be available only until April 2017. Only
applicants who are particularly quick off the mark will be able to
gain access to the full three years of funding, which are likely to
include many of the pipeline projects which remain from
SLF 2012-16. This
does not give enough time for communities to make use of new
provisions in the Community Empowerment (Scotland) Act 2015,
including the extended Community Right to Buy, to progress to
ownership of assets. A key aim of
SLF 2016-20 is to
extend availability to the whole of Scotland, following the
extension of the Community Right to Buy. The restriction of revenue
funding in this manner risks undermining such an ambition.

Owing to the potential to generate inequalities in the
distribution of
SLF funding, it is
recommended that communities have access to three years revenue
funding regardless of at what stage they apply. This is to ensure a
more equal access to
SLF monies, and to
not disadvantage communities taking advantage of new legislative
powers under the Community Empowerment (Scotland) Act 2015, and the
Land Reform (Scotland) Bill. Such an arrangement could be made
through the provision of further resource to the
SLF by Ministers, or
alternatively arrangements could be made with delivery partners to
spread the existing resource base across three years following the
completion of
SLF 2016-20, perhaps
in concert with Big Lottery Fund's existing three-year grant
monitoring commitment.

Recommendation 4. Ensure that
SLF 2016-20
applicants can access the full amount of revenue funding regardless
of when they apply. Financial arrangements will need to be in place
by year two (2017-18) to ensure later applicants are not unfairly
disadvantaged.

Based on the findings in the first two parts of this evaluation,
with some exceptions already noted, the modifications to the design
on of
SLF 2016-20 are
improvements to the
SLF 2012-16. However,
the expansion of the
SLF into urban areas
means that
SLF 2016-20 must also
be equipped to face the challenges of its extended remit, not just
remedy its past deficiencies.

Demand for the
SLF
2016-20

SLF 2012-16 faced a
relatively stable demand profile which did not exceed the available
budget over its four years of operation. The relative lack of
competition enabled very diverse projects to be funded alongside
one another without significant competition between them;
concomitantly, an increase in demand may surface differences in
which projects should be prioritised. The expansion of the
SLF 2016-20 to cover
the whole of Scotland is likely to significantly alter the demand
profile, however it is very difficult to predict exactly how.

There are currently 56 projects in the pipeline for
SLF 2016-20 at the
close of
SLF 2012-16, coming
to total value of £7,727,195. Delivery partners estimate that
less than half of this will clear within one year, however this
still indicates that a third of the budget for the first year of
SLF 2016-20 may be
taken up by
SLF 2012-16
applicants. It is also possible that the promotional work for the
SLF 2016-20 carried
out by Big Lottery Fund and
HIE,
and media coverage surrounding its launch, may increase the
appetite for funding, resulting in more applications coming through
when the new fund opens.

Some insight into future demand for
SLF 2016-20 can be
gained from the experience of the first round of
GCA (2006-2010)
, which superseded Big Lottery Fund's Scottish
Land Fund (2001-2006). Similarly to
SLF 2016-20,
GCA extended
support previously reserved for rural areas to the whole of
Scotland. The evaluation for
GCA found that
the first year was dominated by applicants from rural areas who
were quicker to respond to the opening of the
SLF, but that urban
projects eventually increased to become a sizable minority of
projects in
GCA's funding
profile
[7]. There is thus some reason to believe that demand in the
first year of
SLF 2016-20 will be
similar in profile to the final year of
SLF 2012-16.

It cannot be said for certain that
SLF 2016-20 will
follow the same pattern of demand as the first
GCA, however.
Legislation is now far more amicable to the transfer of assets to
urban communities than it was in 2006 when
GCA was
introduced, and awareness of the possibilities and benefits offered
by ownership is now more commonplace. Notably, the Community
Empowerment (Scotland) Act 2015 has extended the Community Right to
Buy powers to urban areas, while most of the 32 Community Planning
Partnerships now have a functioning asset transfer policy, with
some better developed than others. There are also likely to be some
high-capacity urban communities waiting to apply to the
SLF 2016-20 when it
first opens. Given that legislative powers are not currently fully
functional and will take time to gain traction, and the
SLF is likely to be
less known amongst urban communities, it seems reasonable to assume
that urban applications will be few in number until at least 2017,
whereupon urban communities will begin to take notice of the
SLF and take
advantage of new statutory and non-statutory opportunities to
acquire community assets. There may also be a greater number of
high value housing projects due to changes in the Rural Housing
Fund better linking ownership and development.

Urban projects are likely to feature more strongly in
SLF 2016-20 from its
second year onwards. Owing to higher land prices, urban asset
ownership projects are known to carry comparatively higher values
than rural equivalents, and therefore the gross value of demand
will likely eventually be much higher than in the
SLF 2012-16. A best
guess would predict that the
SLF 2016-2020 is
likely to face a non-linear demand curve, with steady demand in the
first year, rising sharply once an larger number of high-value
urban applications come in after 2017. For this reason, demand in
2016-17 should not be taken to be indicative of later years, which
likely will bring a greater number of higher value projects.

Demand also has implications for the cohesiveness of the
SLF. The
SLF 2012-16 funded a
very diverse array of projects, from small amenity-based
initiatives all the way through to very large and complex projects.
So far, the
SLF has been able to
fund all such projects through a combination of flexibility in the
way the fund is administered, and a lack of competition between
applicants. An increased level of competition between applicants
could surface some tensions amongst
SLF delivery partners
and the Committee as to which applicants better fit the
SLF's ambitions. Some
interviewees in the Committee and community land representatives
felt that the fund should ensure it is in a position to fund rural
estate buyouts as a priority, and were cautious that high value
urban applications had the potential to squeeze out other
applications. There were also fears amongst some interviewees that
the
SLF 2016-20 would be
dominated by high-value applications coming both from rural
communities in
HIE's
area and urban communities in the central belt, neglecting smaller
settlements in the rest of Scotland.

Some
SLF 2012-16 Committee
members felt that in going forward, clearer guidelines would be
necessary to adjudicate fairly between different types of urban and
rural applications, which have different merits and implications
for value for money. While urban projects are likely to benefit
more people, they are also likely to have much higher capital costs
in comparison to rural projects, and diminish the total allocation
of funding much more rapidly. If competition amongst applicants
increases, the criteria by which a very diverse array of projects
may be judged alongside one another will need to be clarified, as
per Recommendation 2.

Additional difficulties which the
SLF 2016-20 may
encounter

Based on the experience of both the first and second
GCA, and of
community asset ownership more generally,
[8] urban applications are more likely to be based on buildings
rather than land, and are likely to be far higher value owing to
higher land prices in urban Scotland. There were perceptions
amongst some delivery partners and community land representatives
that urban communities have less of a tradition of asset-ownership,
and fewer models of good practice to learn from, which may lead to
longer development times and more need for support. Urban areas
were also felt to present a number of additional difficulties which
might impact on their capacity to deliver
SLF outcomes. Some
delivery partner interviewees anticipated that defining communities
would be difficult in urban areas owing to the larger size of
communities and less clear-cut boundaries between communities.
There were also assertions that social capital may be weaker, and
that demonstrating community support might be more difficult for
urban communities.

This view is however disputed by other delivery partner
interviewees with direct experience of working with both urban and
rural communities, who argued consistently that there are no
significant differences between the two groups, and that in
practice many difficulties are easily avoided. The experience of
GCA has shown
that in practice urban communities are able to self-define their
boundaries without issue. By setting different standards for a
demonstration of community support (
e.g. setting a target number of
the community in support, rather than a percentage), this issue
also need not cause issue. The
SLF housing policy
will need to be revisited to ensure its relevance to urban areas.
For instance, there is currently a restriction that no two housing
projects should be funded within ten miles of each other; this
restriction no longer makes sense given the population density of
urban areas.

Some delivery partners also hold the belief that urban
applications are likely to face higher risks than rural
applications. As urban asset ownership has tended to be
building-based rather than land-based, some delivery partner
interviewees anticipated that such buildings would be in need of
very substantial development and refurbishing costs - which would
be ineligible for
SLF 2016-20 funding.
This would mean that communities are acquiring liabilities, rather
than assets, until appropriate developmental funding could be
attained. This was felt by one delivery partner to increase the
risk of community bodies folding, running debt or the assets they
hold depreciating in value. To mitigate against this issue, one
potential solution would be for projects, urban or rural, to go
straight to Community Assets (the successor to
GCA) which,
like
GCA, can fund
both acquisition and redevelopment.

A better long-term solution is to consider how the acquisition
and revenue funding provided by the
SLF can be better
integrated with developmental funding provided by other relevant
funds. There is still considerable lead-in time between the
SLF and
GCA (though Big
Lottery Fund could push applications through to reach stage 2 of
the
GCA funding
process),
LEADER,
and the Rural Housing Fund (often over one year), as communities
have to wait until they have acquired assets to begin the
application process for development funding. With often no
communication between the acquisition and development funding
process at present, many of the beneficiaries interviewed
experienced asset acquisition and development as a sequential,
rather than integrated, process. Having Big Lottery Fund administer
both
GCA and the
SLF did allow
significant integration between
GCA and the
SLF which allowed
communities to progress through the
GCA funding
process before completion of the acquisition through the
SLF, however some
beneficiaries interviewed still remarked upon the gap between
acquisition and development. It is recommended to explore ways to
better integrate the
SLF with key sources
of development funding, particularly in cases seeking large grants
and those which have concrete and well-planned development
ambitions following acquisition.

Recommendation 5. Seek greater integration between
the major funding streams for community ownership (
e.g.LEADER,
GCA and the
Rural Housing Fund) to reduce lead-in times between acquisition and
development.

Communities outwith the
HIE
area also face increased risk in the long run when compared to
HIE-supported
communities.
HIE is
able to provide technical and financial assistance to communities
who run into trouble after acquisition, and can use these powers to
advise or steady communities who run into difficulties following
asset acquisition. There is no such agency available to rest of
Scotland communities with a comparable level of expertise or
readiness of financial support. This leaves open a problematic
element of long-term risk to rest of Scotland community asset
owners which may eventually lead to poorer long-term outcomes.

There is also a danger of local authorities seeing the
SLF as a means to
realise better value from their own asset transfer activities.
Local authorities have been encouraged to use their powers to
release assets at less than market value but have often been
unwilling to do so. Going through the
SLF process may thus
be seen as a potential route of both community group and local
authority avoiding any significant loss.
GCA currently
requires that communities ascertain a discount from market value
from public bodies before considering making an offer; the
SLF 2016-20 should
consider doing the same if needed.

Recommendation 6. Monitor applications coming into
the
SLF to make sure
local authorities are not using the
SLF to avoid
disposing of assets at less than market value. Consider enforcing a
set discount if this becomes an issue.

A final danger is that State Aid may resurface in relation to
urban areas. Although a shared interpretation of State Aid was
reached amongst delivery partners in 2014, urban communities
present an increased likelihood of private sector displacement. The
lack of a cohesive interpretation of State Aid in
SLF 2012-16 was a
major problem and a source of frustration to some applicants. To
avoid further negative outcomes and disaffection with the
SLF, delivery
partners should ensure that a shared interpretation of State Aid is
reached which does not impede access of urban communities to
SLF grants. It is
important that this issue is resolved before 2017 when an increase
in demand from urban communities is likely to be observed.

Recommendation 7. Ensure that a shared position is
agreed on State Aid amongst
SLF delivery partners
which allows urban applicants equal access to
SLF funding.
Endeavour to have this in place and understood by delivery partners
before 2017.

Section summary

The changes set out for
SLF 2016-20 improve
upon many aspects of
SLF 2012-16. However,
the extension of the fund into urban areas is a considerable leap
into the unknown which may have significant implications for the
cohesiveness of the
SLF. If competition
for the fund increases, Committee members will need to be clear on
how to decide how funding is allocated between an increased
diversity of projects with different implications for value for
money. One way to broach this is to produce clear guidelines -
perhaps in collaboration with the new Committee - against which all
projects are to be judged, and ensure these form the basis of
decision making in Committee meetings.

There was some disagreement evident amongst delivery partners
regarding the different support needs of urban communities, the
complications over what defines a community in an urban area, and
the different criteria needed for demonstration of community
support. The experience of
GCA, which has
encountered all of these issues, and the views of most
interviewees, suggest that all of these difficulties can be
overcome.

The extension of the
SLF into urban
communities also presents three additional dangers in moving
forward. Firstly, the lack of a comparable supportive agency such
as
HIE for
the rest of Scotland may have implications for long-term risk
management in rest of Scotland communities who lack access to
quick, integrated financial support and expertise, and perhaps
particularly in urban areas where assets coming into acquisition
may be higher in value and in poor condition. Secondly, it is
possible that differences in the understanding of State Aid amongst
delivery partners, which brought some applications to a standstill
in 2014, will surface once again in relation to urban applications.
There are also displacement issues that are likely to be more
prevalent in urban areas. Thirdly, there are some suggestions that
SLF funding may be
used by local authorities as a means to avoid making discounts to
market value in transferring assets to communities.

It is emphasised however that while some of these issues can be
mitigated by a pro-active response, most remain unknowns at this
stage. It is not possible at present to predict what competition
will be seen amongst
SLF 2016-20
applicants, the level of urban demand, or the response of local
authorities in making discounts on asset transfers. Considerable
attention will need to be paid to these issues, particularly the
response of the
SLF to the emerging
demand profile in the first and second years, and a review is
recommended to be conducted at the end of year two into the fit of
the
SLF for a portfolio
of increased diversity.

Recommendation 8: Consider conducting a mid-term
review of
SLF 2016-20 which
looks critically at the effectiveness of the
SLF as it responds to
increased diversity in its demand profile.